136 AN INTRODUCTION TO ISLAMIC FINANCE
perhaps, be far more important in the mobilization of savings in an Islamic
system than in a conventional interest - based system. Moreover, effective
fi nancial intermediation requires more - effi cient resource allocation in an
Islamic fi nancial system. It can be expected that the monitoring costs would
be higher, and the need for specialization and expert portfolio diversifi ca-
tion and management far greater, at least in the initial phases of operation
after the adoption of the Islamic system, than in a conventional interest -
based system. While the integration of fi nancial markets should present no
diffi culties in the Islamic system, the provision of a positive high rate of
return, although not requiring any arbitrary decision by the authorities to
increase the nominal yield, would necessitate the mobilization of indigenous
entrepreneurial ability through effi cient project selection and the allocation
of fi nancial resources based on relative expected profi tability of projects,
rather the solvency creditworthiness or the collateral strength of the agent -
entrepreneurs. If the bias against indigenous and small entrepreneurs persists
and fi nancial resources continue to fl ow to well - established and large entre-
preneurs and/or the fi nancial markets remain weak and shallow and asset
choices limited, adoption of an Islamic fi nancial system will not achieve its
full potential in promoting economic development and growth.
ENDNOTES
- Ul - Haque (2000).
- Ibid.
- IRTI, Resolutions and Recommendations of The Council of the Islamic Fiqh
Academy: 1985–2000, Islamic Development Bank, Jeddah, Saudi Arabia: 131.